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Will Unions Kill Health Care Reform?


I have bad dreams. Nightmares, really. They used to be pretty rare. Every fortnight, maybe. But ever since the public employee union American Federation of State, County and Municipal Employees took a knife to Sen. Ron Wyden (D-Ore.), they've been coming more frequently.

Wyden, after all, is a liberal Democrat. AFSCME is a left-leaning union. Both are desperate for health reform. But AFSCME is spending its time attacking Wyden. Why? Because Wyden wants to replace the employer tax exclusion (I told you that thing was important!) with a progressive tax deduction that all Americans, not just those with good employer benefits, would get. That means the poorest among us would get slightly more and AFSCME's members might get slightly less.

But AFSCME isn't really attacking Wyden. The bill Wyden co-sponsored -- the Wyden-Bennett Healthy Americans Act -- has fallen out of the conversation. The energy right now is in Sen. Max Baucus's (D-Mont.) process, and maybe Sen. Ted Kennedy's (D-Mass.) coming proposal. Everyone expects the final legislation out of the Senate to include a cap of some kind on the employer tax exclusion. And that's really what AFSCME is going after here. They're hitting Wyden to demonstrate their willingness to attack anyone who touches their tax benefit. This is less an assault on Wyden than a warning to Wyden's colleagues.

And AFSCME isn't necessarily alone. The Health Care for America Now coalition, which includes AFSCME and other unions, has come out against touching the employer tax exclusion. The Economic Policy Institute has released a series of reports attacking the idea, including one, in partnership with First Focus, arguing that the taxing the health benefit will hurt the children. Actually, to be more precise, the e-mail I got said "TAXING HEALTH BENEFITS IS DETRIMENTAL TO CHILDREN." (I posted on a previous EPI report -- which I found unconvincing -- here.)

But you know what would be really bad for children? If health reform falls apart. And what these folks are doing is, essentially, attacking the main funding source for health care reform. That's not to say they don't have some alternatives. Last week, HCAN partnered with Citizens for Tax Justice to release a set (pdf) of "progressive" options for health care revenue (taxing the employer exclusion, incidentally, is also, indisputably, progressive). Here's what they came up with (click on the image for a larger version):


The ideas aren't bad. But they have no support. AARP, for instance, will howl when faced with the Medicare change. Sen. Chuck Schumer (D-N.Y.) opposes the capital gains change. And so forth. The unions haven't spent the last few months laying the groundwork for these revenue options. And it's rather late in the game -- the finance committee wants a bill in June, and their set of revenue options was released a week ago -- to slap a random set of new taxes on the table.

And all this elides a simple fact: Capping the employer health care exclusion is good policy. Eliminating it entirely would be better policy. It's true that some unions, like AFSCME, would see the value of their employer benefits degrade slightly. (Some unions, like Service Employees International Union, would scarcely be affected at all. Janitors are not, as a rule, given generous employer health benefits.) But the labor movement, as a whole, is much worse off in a world where the employer exclusion is capped but we have health reform than in a world where we don't have health care reform and can't control premium costs.

In that world, employers who offer health benefits will be ever less competitive against their stingier competitors. Union shops will close as the associated labor costs become unsustainable. Employers will fight ever harder against unionization because they'll be terrified of being trapped into health coverage arrangements that they can't control.

It's hard to fault AFSCME and friends for some early positioning. This is the game, as they say. And as we near legislation, it's going to get more fierce. But I hope they're keeping a clear head here. I doubt they have time to build support for a raft of new taxes. And health care reform with a cap on the tax exclusion is better -- even for the unions -- than no health care reform at all.

By Ezra Klein  |  May 28, 2009; 5:00 PM ET
Categories:  Health Economics , Health Reform  
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Dude, AFSCME will cut you. Be careful.

Posted by: ThomasEN | May 28, 2009 5:22 PM | Report abuse

Oh my! The four revenue raisers (offsets against healthcare costs) in the pie chart couldn't get 50 votes in the Senate for any one of them, and certainly not all four.

I'm a big supporter of a larger role of unions in the economy (not justified herein), but this kind of short-term inward-looking union opposition to money to pay for reform is possibly the end of the reform drive. Even with annual costs accepted as being $100 billion (but they won't be accepted as accurate after all the opposing forces mobilize), where's that money going to come from?

If the unions pull their anti-Wyden trick on Baucus and Kennedy, it is all over. It may be over anyway because the economy is worse than the media portrays at the behest of the Fed./Treasury/Wall Street. By the time they vote in the fall, that fact (and cliff-diving tax revenues) will scare the heck out of J6P, the Congress and everybody's pet dog.

What the unions don't understand is that non-union taxpayers are now very angry at 'protected benefits' in unionized firms and public employers. The anger is turning to hate. How did Reagan get away with forbidding the air traffic controllers from being in a union? The public was disgusted at the pay/benefits these folks were making in 'government jobs'. Even other unions wouldn't back them.

If the unions think that they can protect their sanctuaries for much longer amidst the greatest downturn since the great depression 70 years ago, they are badly mistaken.

Posted by: JimPortlandOR | May 28, 2009 5:29 PM | Report abuse

Single payer bypasses all these petty problems. Looks like we are going to have a half-assed plan that will soon go broke.

Posted by: JJFAHL | May 28, 2009 5:33 PM | Report abuse

This short sighted, short term gain, stance is the same thing that broke the unions in the 50's and 60's - I've got mine so f* you - leaving the vast majority of workers unorganized. You'd think they'd wise up and realize that if everyone benefits then the push to improve benefits down the road has a lot more weight behind it.

Posted by: loki251 | May 28, 2009 5:50 PM | Report abuse

But Ezra, you've argued for years that any reform has to leave people's existing benefits alone, or the fear of change will kill it just as it did in 1994.

Capping or eliminating the employer tax deduction would reduce employer-provided health benefits. It would leave the 2009 plan with the same vulnerability as the 1994 plan.

Posted by: tyronen | May 28, 2009 6:34 PM | Report abuse

I agree with JJFAHL. You're arguing about what kind of band aids we need on our TB Patient (health care in the US) when the rest of the world is using antibiotics.

As I have pointed out in other postings:

The American public wants Medicare for All by a 2 to 1 margin.

If we can't get the only system that will be efficient enough to see us through the next 10 years or so, I say wait. Again as I remarkred previously, Mr Klein's bogus computation that we can't wait is typical of the people who believe in myths, not facts.

Posted by: lensch | May 28, 2009 6:54 PM | Report abuse

>>>Union shops will close as the associated labor costs become unsustainable.<<<

Bah! It's the same old race to the bottom. Instead of taking from working people who are suffering in a great wage depression already -- why don't we reverse shift the 15% of income share from the bottom 90% of earners to the top 1% that began long ago.

THAT IS WHY WE ARE IN SUCH DIRE FINANCIAL STRAITS unable to pay for health care. 15% is the portion of GDP that goes for health care. See any connection?

Almost forgot: the path to reversal that our economic progressives never think of in the first place: sector-wide labor agreements. They would think of it all day every day if their upper income families were suffering terribly because they lost the the race to the (unionless) bottom. Sector-wide is the only way back up!

Posted by: DenisDrew | May 28, 2009 7:13 PM | Report abuse

"But the labor movement, as a whole, is much worse off in a world where the employer exclusion is capped but we have health reform than in a world where we don't have health care reform and can't control premium costs."

Is that actually what you wanted to say, Ezra?

Posted by: SqueakyRat | May 28, 2009 7:29 PM | Report abuse

Not gonna lie, I think the content has been neutered a bit. But two thoughts:

If you spent half as much time talking about a public option as you whining about this sole revenue source (there are others), youd be better off.

Also, to be blunt, young liberals and politicos have very little understanding of how labor works. They conceptualize it as a mere liberal interest group, rather than what it is - a democratically elected organization representing employees (sort of like what Congress is supposed to be). There job is not to appease but serve there dues paying membership. Therefore, they are not here to solve Max Baucus' or Wyden's problems but there members.

And please stop referring to Wyden as a liberal. He is a centrist and nothing more.

Posted by: dside | May 28, 2009 10:51 PM | Report abuse

Ezra burbles:

And what these folks are doing is, essentially, attacking the main funding source for health care reform.

Uh, no. The main funding source for health care reform "is" the 30% that health insurance CEOs, profit, and the administration of claims denial takes, vs. the 3% that single payer takes ($350 billion a year).

Unfortunately, the Beltway has taken that off the table -- with Ezra cheerfully helping them do it by ruling it "politically infeasible." Well done, "progressives"!

Posted by: lambert_strether | May 29, 2009 12:14 AM | Report abuse

The main funding for health care (now 15% of GDP) COULD HAVE COME FROM the 15% of income share that has slipped out of the pockets of the bottom 90% of American earners and floated into the pockets of the top 1% -- over the past 36 years (1973 being the year it began to slip -- it is that exact).

CBO reports average top 1 percentile household income as $1.2 million (!!!) for 2006 -- at which point 25% of the labor force was earning a lower hourly rate than the minimum wage...
...of 1968 -- 6 million of us earning little more than half the minimum wage...
...of 1968 (!!!) -- double the average income later.

I may surprise you by stating that I put the blame squarely on the American worker (why I say "slipped" and "floated" not squeezed) who has the voting power to turn this around over night with nothing radical -- with a simple practice legislated all over the better paying OECD world: sector-wide labor agreements (wherein everybody doing the same job in the same locale works under a unified contract even for different firms -- automatic end of the race to the bottom -- it chased Wal-Mart out of Germany).

But (dumb) Americans (that is probably you reading this -- don't take offense; I am just a cab driver who dug into this topic on my own a little -- stopped listening to the talking heads -- and found out about the shockingly easy way out that our plight that the talking heads never mention; where was I) rely on the "hidden hand."

In any other discipline the "hidden hand" would just be described as related equilibrium points (the way the human body runs -- why not the market?). But because some eighteenth century philosopher (Smith?) described said collection of equilibrium points in parable fashion (amazed that competition had within it also cooperation) dumb talking heads (in this country alone) give credence to the magical thinking that somehow these equilibrium points will do all our economic worrying for us -- in the labor market alone; not in the real estate or stock markets where everybody scrambles to keep sharp.

America: the land of almost free labor.

Posted by: DenisDrew | May 29, 2009 12:45 AM | Report abuse

Ezra: You really need to fix the mistake in the sentence that contains the nut of your argument:
the labor movement, as a whole, is much worse [SIC: ought to read “better” instead of “worse”?] off in a world where the employer exclusion is capped but we have health reform than in a world where we don't have health care reform and can't control premium costs.

Posted by: slittlehale | May 29, 2009 10:38 AM | Report abuse

I second JJFAHL. The fact that the "reform" conversation has already degraded into back-and-forths on this minutiae means that we're just going end up with an even more complicated and expensive piecemail healthcare system... and Ezra, I don't agree that that would be better than what we have now.

Single payer is the only meaningful solution to the healthcare crisis.

Posted by: Lucky_Charm4 | May 29, 2009 1:30 PM | Report abuse

For a blog post designed to display political intelligence, this is suprisingly naive. Five considerations worth noting:

1. Go back and look at the campaign ads ran by Candidate Obama in October. The vast majority were an attack on McCain's plans to subject employer paid health care benefits to taxation even though the McCain plan would offset the tax with a tax credit for health care purchase. Some estimate that Obama spent more than $75 million in October alone attacking changes in the tax exclusion.

2. Obama's tactic worked, largely because the public agrees with him. 75% reject changes in the current tax exclusion policy.

3. Tax exclusion will be the death knell for health care reform. Not because of Labor, which by most accounts is putting more money and energy into this fight than most other groups. But because the Republicans will have the perfect political cover to oppose the ultimate reform plan if it includes tax exclusion changes. See 1 and 2 above. Baucus, as usual, is too blinded by his own imperial view to see this, but one would expect more savy pols in the Senate (like Schumer) to understand this.

4. Why should blue-state Democrats support financing based on wealth redistribution from those who have comprehensive coverage to those who have limited or no coverage when the comprehensive coverage tends to be in blue states? Why not let John Cornyn and Bob Corker pursue this change?

5. Finally, we need to address wealth inequality as part of creating a more robust economy. An effective way to do that is to end the preference for income generated by wealth over income generated by work. This means raising the capirtal gains tax rate to the Reagan era 28% (at least). Keep in mind, the average AFSCME member make substantially less than $50,000 per year; should we tax these households or those with considerable capital gains?

Posted by: dcinsider1 | May 29, 2009 1:42 PM | Report abuse

Will Unions kill healthcare reform? No, more likely wet-behind-the-ears pundits who have no understanding of the American workplace, writing inflamatory headlines meant to draw in rabid right wingers thus "proving" their David Broder centrist "credibility" will kill healthcare reform...

Single Payer NOW!

Posted by: kwagner99 | May 29, 2009 2:30 PM | Report abuse

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